What did Patrick Chinamasa mean when he said ZANU PF had endorsed a decision to “eject Old Mutual from the financial system”? Nobody knows. Not even Old Mutual itself.
In a statement on Sunday, Old Mutual said it was “seeking clarity” after ZANU PF’s comments about the country’s largest insurer added more uncertainty to an already panicked market.
Speaking at the end of the ZANU PF’s politburo meeting in Harare last week, Chinamasa, who is the party’s acting spokesman, said the politburo had endorsed a decision to “eject Old Mutual” as the company, together with EcoCash, were causing “runaway inflation through illegal parallel exchange-market rates”.
Now, just like everyone else, Old Mutual is trying to figure out just what Chinamasa meant.
“We have noted reports in the media relating to the Old Mutual Group. We are working with all relevant stakeholders to seek clarity on the mater,” Old Mutual said in its statement. “In line with the group’s responsible business policy, Old Mutual has and will always comply with all regulations and legislation with the countries where it operates.”
The company remains open and continues to operate normally, Old Mutual said.
“We advise you that all our services and operations are continuing to run as normal. Old Mutual Zimbabwe and its business units, including CABS, continue to be financially stable and sound.”
Old Mutual Statement to Customers pic.twitter.com/C7noCgVOon
— Old Mutual Zimbabwe (@OldMutualZW) July 12, 2020
That a company of Old Mutual’s influence – one of the largest investors in Zimbabwe – has to scratch its head about remarks by a senior official shows a major problem; the same old policy discord and lack of basic clarity that has helped make Zimbabwe an investment leper for years.
What, exactly, was Chinamasa on about? What is this “financial system” and how does one get “ejected” from it?
Chinamasa’s comments predictably drew various interpretations. This is inevitable, in a market that’s in a constant state of panic. Why not; on one hand is ZANU PF’s increasingly cavalier policy changes and inept communication. On the other is the politically-charged commentariat. It’s a potent panic cocktail.
Speculation spread quickly that Old Mutual had been delisted from the stock exchange. However, no such directive had been given to the Zimbabwe Stock Exchange as at Friday. Chinamasa himself didn’t specifically make such a threat.
Others also speculated that Old Mutual’s CABS, the leading mortgage lender, would be suspended. Some headlines made it sound as if the company itself was about to be kicked out of Zimbabwe.
However, Ministry of Finance officials also tell newZWire that they were unaware of any fresh decision being made against Old Mutual. More likely, one official suggested, Chinamasa was referring to the suspension of the fungibility of the company’s stock back in March.
“We can only suppose that the endorsement referred to was only of previous decisions already taken on the market,” an official said.
Until that suspension, an investor could buy Old Mutual, PPC or SeedCo shares in Zimbabwe, using Zimdollars, and then sell them outside the country for US dollars or Rand. This was one way in which foreign investors could take their money out of Zimbabwe, given the forex crisis. This was banned for 12 months.
The irrational OMIR fear
The government bizarrely believes Old Mutual has a hand in the Old Mutual Implied Rate (OMIR). Market watchers compare the differences between Old Mutual’s share prices in Zimbabwe and those of the company’s share prices in Johannesburg. They use this difference to come up with an informal exchange rate.
However, Old Mutual has no role at all in the indicative rate. That this basic fact isn’t understood shows the abject lack of quality of policy making in the corridors of power.
Charlie Robertson, global chief economist at Renaissance Capital, which has just started advising a major Russian energy firm on a possible investment in Zimbabwe, put it this way on Monday: “Hi ZANU PF, free advice: the parallel exchange rate investors that investors work out for Zimbabwe, by comparing the share price of Old Mutual in SA and Zimbabwe, is the symptom of the government’s policy choices. It is not the cause of currency weakness or inflation.”
On June 26, well after ending Old Mutual’s fungibility, the government suspended trade on the ZSE. We heard of the “existence of fake counters on the ZSE, which is epitomised by the so-called Old Mutual Implied Exchange Rate”.
Lost in translation
It was into this already confused mix that Chinamasa poured his own rashness. He further confused stock market players already in a panic over the ZSE’s suspension. The market has been suspended for weeks now, with no updates on any moves to reopen it.
It may not have been clear immediately what Chinamasa meant. For everyone’s sake, hopefully Old Mutual soon finds out.
One thing is clear, though; as ZANU PF becomes more desperate to convince everyone, even itself, that it is still in control of the economy, the risk of confidence-sapping policy missteps – and erratic remarks – will only increase.
“When they say it (Old Mutual) is ejected, I’m not sure what he means,” said Lloyd Mlotshwa, head of equities at brokers IH Securities. “I’m not sure it’s a delisting yet, at this point it’s a confusing statement.”
And that’s just the thing. Investors should not need some ZANU PF translation service. All they need is clarity and certainty.